Loans play an essential role in developing the economy. It gives people and businesses resources to achieve their goals. Be it personal or professional, loans facilitate the flow of money, employment and generate revenue in the economy. Getting a loan has been significantly easier over the past several years. A bank now offers loans in a wider range of scenarios. We shall first look at two major types of loans and later different kinds of loans.
Different types of loan
Broadly speaking, loans are divided into two categories.
- Collateral loans [secured]
- Non-collateral loans [non-secured]
For the first type, you need to provide collateral. Providing collateral simply means providing your assets against which you will be granted the loan. Those assets could be for example your property or fixed deposit. The valuation of the assets which you need to provide depends upon factors such as your required loan amount, income, credit score, etc.
In the second case, you need not provide any assets of any kind to the bank. Usually, this kind of loan is harder to secure, especially for students or people who recently started their profession as they don’t have a strong source of income.
Having a collateral loan is overall an advantage. Usually, you will be sanctioned with a higher loan amount as well as you can get a relatively lower interest rate. In the case of non-collateral, there are restrictions on the amount that can be sanctioned even if you meet all the other criteria. Also, interest rates are most likely higher than the previous one.
Kinds of loans
Today it doesn’t matter if you are planning to buy your first house or want to start a small business. Practically for almost everything a bank provides you with a loan. We will look few of the popular kinds.
Personal
- This is one of the most versatile kinds. By that I mean, you can use the money borrowed under this for any personal reason. You could use it to pay off your previous debt, for a wedding, medical requirements, or even a vacation. They can be of secured or non-secured types. The rate of interest fluctuates a lot more as compared to others. It will all depend on your loan type as well as the bank offering it.
Student/ Education
- Education does not always comes cheap. Be it international education or within your country. Based on your degree and location you could be requiring a substantial amount of money to fund yourself. This is where education loan comes in. Usually, these types of loans are granted for graduation and post-graduation courses.
- This is one of the most complex of all the other kinds. By that I mean there are way more parameters that are considered or evaluated to determine your loan amount and rate of interest. Your institution, course, country, and previous academic background are just the very basic information. From the income of your parents to their assets and a lot more is evaluated before granting such loans.
- Even though it might be a long journey to secure, there are many benefits and perks which come along. It not only covers your course fees but also your basic living expense, as well as important accessories such as a laptop or mobile, which can be claimed under this. But the biggest advantage which it gives is the mortarium period of up to two years. This means your repayments do not start immediately. Mortarium period is rarely given on any other kind of loan. The subject of student loans is quite broad. To understand its workings and details click here.
Vehicle
- There is nothing more exciting than buying your first vehicle. To make it happen banks give you a dedicated loan for it. Interest rates are fixed and don’t vary from bank to bank. A very unique feature of this loan type is that the vehicle that you purchase acts as collateral. Hence initially the vehicle is registered under the bank’s name or the financing institution’s name. On completing the loan you can later transfer under your name.
Home
- For many people, having your own home is a dream. It is one of the most emotional and financial decisions to make. Well, to make your goal more plausible banks offer you to borrow money for the same reason. The interest on these is not only lower but also makes you eligible for tax deductions. The high cost of real estate in urban areas necessitates substantial borrowing. The tenure is adjustable and can last up to three decades to make payments easier.
Business
- Be it starting a new business or expanding your current one, you would require funds. Business loans are a sort of financing that gives entrepreneurs access to money to boost their expanding companies. This might entail paying wages, buying merchandise, or using borrowed money for equipment.
- Also for new innovative startups government itself has been providing loans with minimum interest rates under their project “Make in India”. Indian government wants to boost indigenous goods in various fields. To do so it is providing significant funding to entrepreneurs who can contribute in those segments. To know more about making in India and the areas in which you can get a loan for your business click here.
Conclusion
Never before has borrowing money been so simple. Nowadays, anyone may borrow money for just about any purpose. Not only that, but the amount itself is irrelevant. Financial institutions are ready to meet any form of lending requirement.